MSME Briefing Bureau

The hidden supplier capital behind India’s manufacturing ambition

India wants to become a global manufacturing powerhouse. But behind its factories is another financial engine rarely discussed: supplier working capital. A founder recently described how his company was required to hold buyer-specific material worth crores while waiting for production instructions. Then came the second problem — delayed payment after delivery. Together, these two pressures reveal an uncomfortable reality: smaller suppliers can end up financing large companies before production and after delivery.

The order that starts costing before production begins

On paper, a large engineering company’s relationship with a smaller manufacturer looks straightforward.

The buyer places an order. The supplier purchases raw material, manufactures the component, delivers it and receives payment.

But the economics can look very different on the factory floor.

An industrial founder recently shared his experience with MSMEBriefing, on the condition that neither his company nor the principal buyer be identified. The account is revealing because it shows how a supplier can be required to finance a buyer’s operational readiness.

According to the founder, the supplier had to procure material from approved or specified vendors. The material had to be maintained in inventory even though the actual production schedule could remain uncertain.

At one point, the capital tied up in such inventory was between ₹1 crore and ₹2 crore.

Then the waiting began.

The principal company followed its own production requirements. Until production was called for, the material remained with the supplier.

But the supplier’s financial obligations did not wait.

Salaries continued. Electricity bills arrived. Bank interest accumulated. Warehousing and insurance costs continued.

The buyer retained flexibility.

The supplier financed it.

That is the first hidden layer of #SupplyChainFinance.

₹1.5 crore can become a ₹9 lakh problem

Take a notional ₹1.5 crore inventory holding for six months.

At a 12% annual borrowing cost, the interest alone would be approximately ₹9 lakh.

That calculation excludes storage, insurance, handling, deterioration, price fluctuations and the opportunity cost of capital.

The supplier therefore faces a cost without necessarily generating corresponding revenue.

This distinction is critical.

The inventory may belong economically to a particular customer’s production requirement, but the cash required to create that inventory belongs to the supplier.

There are legitimate reasons for a large engineering, infrastructure or defence company to insist on approved materials and vendors. Quality, certification, traceability and safety cannot be compromised.

But those requirements do not automatically answer a different question:

Who should carry the financial risk created by the buyer’s requirement?

A firm production schedule could reduce the uncertainty. An advance payment could fund customised material. Consignment stock could keep ownership with the buyer. A buy-back clause could protect the supplier if confirmed requirements are cancelled.

These are not radical ideas.

They are mechanisms for creating a more balanced #IndustrialSupplyChain.

Then comes the second financing burden

The first problem occurs before production.

The second can occur after delivery.

This is where the experience of garment suppliers associated with #Future Group becomes instructive.

In November 2022, Future Group Vendors United, an association representing more than 300 garment and fashion-accessory vendors, publicly alleged that payments had not been received for more than three years and that ready goods worth approximately ₹500 crore remained to be lifted. The association said around one lakh workers were affected. These were vendor-association claims, not judicial findings.

The episode became even more significant the following year.

In March 2023, the #All India Garment Manufacturers & Vendors Association demanded more than ₹200 crore in dues from Future Group, which it said had been pending since 2019. The association warned of legal action if the dues were not cleared.

The numbers are striking.

But the more important question is what those numbers represent.

A garment manufacturer has already bought fabric.

Workers have already been paid.

Production has already taken place.

Goods have already been manufactured.

And yet the supplier may still be waiting for its money.

At that point, the supplier has effectively become a working-capital provider to the buyer.

That is the second layer of #SupplierFinance.

Two sides of the same financial transfer

The two examples appear different.

One concerns engineering and buyer-specific inventory.

The other concerns garment suppliers and delayed receivables.

But financially, they tell the same story.

Before production: the supplier’s money can be locked into inventory for the buyer.

After delivery: the supplier’s money can remain locked in receivables owed by the buyer.

In other words, the smaller enterprise can finance the customer at both ends of the production cycle.

That is why the issue deserves to be examined as a supply-chain problem rather than simply a payment dispute.

It also explains why a company can have a strong order book and still be financially vulnerable.

An order is not cash.
A profit margin is not cash.
A purchase order is not cash.

Only cash in the bank can pay wages, suppliers, interest, taxes and electricity.

That is the uncomfortable reality behind #WorkingCapital.

The law is clear. The commercial relationship is harder

India already has legislation intended to protect eligible micro and small enterprises from excessive payment delays.

Under the #MSMED Act, 2006, the payment period covered by the Act cannot exceed the statutory limit of 45 days. Delayed payments attract compound interest at three times the RBI bank rate, with monthly rests.

The government has also created the #MSME Samadhaan mechanism through the Micro and Small Enterprises Facilitation Councils.

Yet the problem remains enormous.

The #Economic Survey 2025–26 estimated approximately ₹8.1 lakh crore locked in delayed payments to MSMEs. The Parliamentary Committee on Industry has described delayed payments as one of the sector’s most critical structural challenges.

The Samadhaan Portal had recorded 2,56,892 applications involving ₹55,244.31 crore as of 31 December 2025, according to government-linked parliamentary material.

The question is therefore not whether India has a law.

It does.

The question is whether a supplier can comfortably exercise the right provided by that law.

That is where commercial power enters the picture.

The fear that never appears in the balance sheet

A founder dependent on a major customer faces a calculation that does not appear in audited accounts.

What happens if I demand interest?

What happens if I file a claim?

What happens to my next purchase order?

What happens if the customer moves the business elsewhere?

This is why delayed payment cannot be understood only through legal provisions.

A supplier may possess a legal right while simultaneously fearing the commercial consequences of exercising it.

The Government itself has acknowledged this behavioural dimension. A March 2026 Lok Sabha answer noted the concern over delayed payments and specifically addressed whether enterprises refrain from initiating proceedings because of fears of damaging long-term buyer relationships.

That is the invisible cost of dependency.

And it sits at the heart of #BusinessPower inside supply chains.

The manufacturing contradiction

India increasingly wants its domestic suppliers to become stronger, more technologically capable and more deeply integrated into global value chains.

That requires investment.

Investment requires cash.

Cash disappears when inventory remains idle and receivables remain unpaid.

This creates a contradiction.

The same supplier is expected to:

upgrade technology, hire skilled people, improve quality, obtain certifications, invest in automation and expand capacity — while simultaneously financing customers through inventory and delayed receivables.

That model cannot remain sustainable indefinitely.

A financially weak supplier eventually cuts maintenance, delays investment, reduces hiring or becomes excessively dependent on short-term borrowing.

The result is not merely a weak supplier.

It is a fragile supply chain.

That matters to every large company pursuing #MakeInIndia and localisation.

What responsible buyers should change

Large companies do not need to become charitable organisations.

They need to become better risk-sharing partners.

For buyer-specific inventory, contracts could provide:

• Firm production schedules with defined validity periods.
• Advance payment for customised or buyer-mandated material.
• Buyer-owned consignment inventory, where commercially appropriate.
• Buy-back protection when confirmed orders are cancelled.
• Compensation when buyer-side delays leave material idle beyond an agreed period.
• Wider use of TReDS and receivables financing.
• Transparent internal monitoring of outstanding supplier dues.
• Procurement-performance measures linked to payment discipline.

The objective is simple:

Do not transfer every operational risk to the party with the weakest balance sheet.

That is not charity.

It is sound #SupplyChainManagement.

Who really finances manufacturing?

The founder’s ₹1–2 crore inventory story and the Future Group vendor episode expose two different manifestations of the same structural weakness.

One happens before production.

The other happens after delivery.

Between them stands the supplier — financing inventory, financing labour, financing receivables and absorbing uncertainty.

India’s manufacturing ambitions cannot depend indefinitely on this invisible transfer of financial risk.

A resilient supply chain needs financially resilient suppliers.

And financially resilient suppliers need something more fundamental than orders:

They need predictable cash flow.

India can build more factories.

It can attract global manufacturers.

It can create new industrial corridors and announce new production targets.

But the more important test is much closer to the factory floor:

Can the supplier making tomorrow’s component afford to remain financially healthy today?

If the answer is no, then someone else is financing India’s manufacturing growth.

And that someone is often the entrepreneur who can least afford to do it.

Sustainable manufacturing cannot be built on supplier credit that nobody calls credit.

Tell us what is happening inside your supply chain

Has your business been asked to maintain buyer-specific inventory?

Have delayed payments forced you to borrow, postpone CAPEX or slow expansion?

Or have you experienced a large buyer that genuinely shares the financial risk of the supply chain?

MSMEBriefing.com wants to hear the experiences behind the numbers.

Share your experience confidentially with our research team at editor@msmebriefing.com, using the subject line “Delayed Payment Evidence”.

Your experience could help us build a stronger evidence base around India’s #ManufacturingEconomy — and the financial pressures that remain hidden behind it.

Sources

Government of India — Economic Survey 2025–26
Delayed payments estimated at approximately ₹8.1 lakh crore.

Government / Parliamentary material
Samadhaan Portal applications and delayed-payment data; parliamentary discussion of the structural challenge.

Government of India — Lok Sabha, March 2026
Government response concerning delayed payments and concerns around enterprises initiating proceedings against buyers.

Future Group Vendors United — public statement, 2022
Vendor association claims concerning more than ₹500 crore of ready goods and approximately one lakh workers.

Business Standard — March 2023
Report on the All India Garment Manufacturers & Vendors Association’s demand for more than ₹200 crore in dues from Future Group.

Disclaimer

The anonymous engineering-sector founder’s account was shared directly with MSMEBriefing and the company and buyer have deliberately not been identified to protect commercial interests. The Future Group-related figures are based on public claims made by vendor associations and reported by media; they are not presented as judicial findings. Government statistics and legal provisions have been treated separately from first-hand and publicly reported claims.